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The effect of a curtailment can be either a gain or a loss. The gain or loss is the sum of two elements. The first element is the prior service cost accumulated in other comprehensive income associated with years of service no longer expected to be rendered. For purposes of the curtailment calculation, prior service cost includes (a) the cost of retroactive plan amendments and (b) any remaining transition obligation (see PEB 4.4.1). The second element is the change in the projected benefit obligation, in some cases offset by the amount of unrecognized gains and losses (see PEB 4.4.2.2).
Depending on whether the combined effect of these measurements is a gain or loss affects the timing of recognition. A net curtailment loss is recorded when it is probable that a curtailment will occur and the effect of the curtailment is reasonably estimable. A net curtailment gain is deferred until realized (e.g., when the plan amendment is adopted or the employee terminations occur). If an employer cannot unilaterally terminate its plan because PBGC or other oversight entity approval is required, the net gain should be recognized when approval is received rather than when the amendment is adopted. Refer to PEB 4.4.4 for further discussion about the timing of recognition for curtailments. Also see several illustrations in ASC 715-30-55 that demonstrate curtailment accounting.
See PEB 2.7.2 for a discussion of when to remeasure the plan’s obligations and assets in connection with a curtailment.
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